Introduction of Income Tax and VAT on Electronic Services 

 

Income Tax (Digital Service Tax - DST)
The Finance Act, 2022 amended the Income Tax Act, Cap. 332 by introducing Section 69(m), which establishes a source of income within the United Republic for payments made by individuals (not conducting business) for services rendered by non-residents. Additionally, Section 90 A of the Income Tax Act requires non-resident persons to pay income tax at a rate of 2% on payments received from individuals not conducting business, for services rendered through a digital marketplace.

The Finance Act, 2023 further amended Section 90 A of the Income Tax Act to expand the scope of services to include all electronic services, rather than limiting it to those provided through digital marketplaces.

 

Value Added Tax (VAT)
The Finance Act, 2022 amended the Value Added Tax Act, Cap. 148 by introducing Section 64(5), which allows non-resident persons to register for VAT without the need for a tax representative. To support the implementation of these provisions, the Income Tax (Registration of Non-resident Electronic Service Providers/Suppliers) Regulations, 2022 and the Value Added Tax (Registration of Non-resident Electronic Service Providers/Suppliers) Regulations, 2022 were introduced to provide detailed guidance.

 

Implementation of the Electronic Service Tax Regime

A. Registration
Regulation four (4) of both the Income Tax (Registration of Non-resident Electronic Service Providers/Suppliers) Regulations, 2022 and the Value Added Tax (Registration of Non-resident Electronic Service Providers/Suppliers) Regulations, 2022 requires non-resident electronic service providers or suppliers eligible for registration to apply online through the Commissioner General’s Simplified Online Registration Portal.

• There is no registration threshold.

 

B. Filing and Payment
1. Regulation six (6) of the Income Tax (Registration of Non-resident Electronic Service Providers/Suppliers) Regulations, 2022 and the Value Added Tax (Registration of Non-resident Electronic Service Providers/Suppliers) Regulations, 2022 requires non-residents to electronically file tax returns and make tax payments.

2. Section 90 A (2) of the Income Tax Act, Cap. 332, and Regulation 6 of the Value Added Tax (Registration of Non-resident Electronic Service Providers/Suppliers) (Amendments) Regulations, 2023 set the 20th day of the following month as the due date for return filing and tax payment.

3. The Digital Service Tax (DST) rate is 2% of gross payments.

4. The VAT rate is 18%.

5. Input tax credit is not allowed.

6. Non-resident electronic service providers/suppliers are exempt from using Electronic Fiscal Devices (EFD) when issuing receipts or invoices.

7. Taxes must be paid to a designated bank account in Tanzanian Shillings or an equivalent convertible currency, based on the Bank of Tanzania’s prevailing exchange rate on the date of payment.

 

Withholding Tax on Digital Content Creators and Digital Assets

The Finance Act, 2024 introduced new provisions under the Income Tax Act, Cap. 332:

1. Section 83B: Mandates residents or non-residents making payments to resident digital content creators to withhold tax at a rate of 5% on such payments.
2. Section 83C: Mandates residents or non-residents owning digital asset exchange platforms or facilitating digital asset exchanges or transfers to withhold tax at a rate of 3% on payments made to resident persons for the exchange or transfer of digital assets.

 

Attention to Section 90A of the Income Tax Act- Cap 332 (reference to Finance Act, 2022, page 25, and the subsequent amendments in Finance Act, 2023, page 29, Margin Note: Amendment of section 90A), and Section 64(5) of the Value Added Tax Act- Cap.148 (reference to Finance Act, 2022, page 45, Margin Note: Amendment of section 64) as outlined in the Income Tax (Registration of Non-Resident Electronic Service Providers) Regulations, 2022, and the Value Added Tax (Registration of Non-Resident Electronic Service Suppliers) Regulations, 2022.